Cracks appear in business outlook

By Matt Wade

22 February 2012 — 3:00am

BUSINESSES are losing confidence in the NSW economy amid a sharp rise in small company failures.

Expectations for business conditions in the coming quarter have slumped to the lowest mark since the global financial crisis, the NSW Business Chamber and Commonwealth Bank survey released today shows.

''Businesses we've surveyed have always maintained an optimistic outlook for the next quarter but that has clearly taken a turn for the worse … and that should be of great concern,'' the chamber's chief executive, Stephen Cartwright, said.

A separate report by business advisory group Dun & Bradstreet found company insolvencies jumped 59 per cent in NSW last year, well above the national rise of 48 per cent. Meanwhile, the number of new small businesses started in NSW dropped 75 per cent last year.

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The chamber's survey showed Sydney companies had a gloomier outlook than those in the rest of the state as some of the city's big industries - including manufacturing, financial services, education and tourism - felt the effects of the high dollar, global economic uncertainty and subdued consumer confidence.

Commonwealth Bank economist James McIntyre said the results suggested confidence in the ability of the NSW economy to withstand global problems seemed to have ''cracked''.

Nearly 40 per cent of businesses said their profitability had fallen in the December quarter and about 37 per cent said they anticipated a fall in this quarter. An index measuring expected sales also fell sharply.

The chief executive of Dun & Bradstreet, Christine Christian, warned the rate of insolvencies could rise further if global economic problems persisted.

''Despite recent interest rate cuts, there is a palpable lack of confidence in the current operating environment,'' she said.

''This is obviously one of the side effects of long-standing global uncertainty and can often be enough to deter businesses from entering the market, irrespective of actual conditions. Outside the mining sector, sentiment is generally still poor and the strong Australian dollar is straining profits.''

Failures in the retail sector rose 11 per cent nationally last quarter and were up 115 per cent for the year, Dun & Bradstreet said.

Sydney shoe seller Rod McHugh said small businesses often need to do things differently when conditions worsened.

''It's been very tough,'' Mr McHugh said. ''We specialise in men's shoes and men are always bad when things get a bit tight. They stop spending sooner than women do.''

Mr McHugh's family business, McHugh's Shoes, closed one suburban store and recently opened a boutique-style outlet in Leichhardt that offers made-to-order footwear and shoe repairs. ''You've got to change things,'' he said. ''We are appealing by being a little bit different to the normal shoe store.''

There is often increased demand for services, such as shoe repairs, when sentiment is weak because consumers opt to get items fixed rather than replacing them. ''We are getting some very good shoes in to be repaired,'' Mr McHugh said.

The chamber's survey showed business conditions improved marginally in the December quarter but remained near a two-year low.

The low level of business confidence has not had a telling effect on employment intentions. The survey found 73 per cent of companies expected to leave staffing unchanged while 14 per cent expected to employ more staff and 13 per cent expected to shed staff.